Answer the following question(s)using the information below.Beta Shoe Ltd.manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division.The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory.)The per unit fixed costs are based on a production of 60,000 pairs of shoes.Sole's costs per pair of soles are:
Assembly's costs per completed pair of shoes are:

-What is the transfer price per pair of soles from the Sole Division to the Assembly Division if the method used to place a value on each pair of soles is 180% of variable costs?
A)$14.40
B)$12.60
C)$16.20
D)$28.80
E)$32.40

Question

Answer the following question(s)using the information below.Beta Shoe Ltd.manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division.The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers.The Sole Division "sells" soles to the Assembly Division.The market price for the Assembly Division to purchase a pair of soles is $20.(Ignore changes in inventory.)The per unit fixed costs are based on a production of 60,000 pairs of shoes.Sole's costs per pair of soles are:
  Assembly's costs per completed pair of shoes are:
 
-What is the transfer price per pair of soles from the Sole Division to the Assembly Division if the method used to place a value on each pair of soles is 180% of variable costs?
A)$14.40 
B)$12.60 
C)$16.20 
D)$28.80 
E)$32.40

Quizplus · Accepted Answer

The variable cost of producing a pair of soles is $5 (20-15). The method used to place a value on each pair of soles is 180% of variable costs, so the transfer price per pair of soles would be $9 (5*1.8). Therefore, the Sole Division would "sell" soles to the Assembly Division for $9 per pair. The Assembly Division's cost is $35 per completed pair of shoes, which includes the cost of soles. Thus, the total cost per pair of soles to the Assembly Division is $44 ($35 + $9). Since the market price for a pair of soles is $20, it would be more beneficial for the Sole Division to "sell" its soles to the Assembly Division for $9 per pair, as this would increase the profit margin for the overall company. Therefore, the best choice is for the Sole Division to transfer its soles to the Assembly Division for $9 per pair.

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